MNI INTERVIEW: Trump Canada Threats Amount To A 10% Tariff
MNI (OTTAWA) - Canada's economy faces a chill from Donald Trump's threats amounting to the same drag as a 10% tariff according to Robert Asselin, former adviser to the prime minister and finance minister now with a group representing CEOs of the country's largest corporations.
“Sure we have a 30-day reprieve, but in a way this uncertainty is in itself is a tariff, and it might not be a 25% tariff but the uncertainty in itself might be as much as a 10% tariff,” said Asselin, senior policy adviser at the Business Council of Canada. “What businesses are thinking now is: 'how can I make investments in this economy where I have this thing over my head, where I’m not sure where it’s going?' And this is the damage that has been done.”
The pause agreed between Trump and Prime Minister Justin Trudeau Monday is by no means a signal the threat of a 25% tariff on most goods and 10% on energy will be dropped, Asselin said in an interview. That's because Trump has zeroed in on trade imbalances and tariffs since his first presidential campaign, he said. (See: MNI INTERVIEW: Canada Already Chilled By Trump Tariff Threat)
“Tariffs are the tool that he has found to leverage and rebalance this trade,” Asselin said Tuesday on The MNI Podcast. “I personally have huge doubts that he will achieve this result with this tool, but this is the game we’re in.” Canada's trade with the United States shows a deficit after taking out energy, and restrictions with Canada overlook bigger security worries around China, Asselin said.
While Canada's threats of retaliation avoided an oil export tax, the public mood has shifted to a point where the United States is no longer seen as a secure or preferred trading partner, Asselin said. “What has happened in the last few days in my opinion is historic. I’ve rarely seen a level of nationalism in Canadians as I have seen.”
A GOOD RECKONING
“This reckoning is a good thing in a sense that it might have helped wake up I think the Canadian people, and certainly Canadian policymakers, about the need to be much more intentional about our future,” he said. That could drive changes needed to undo a long spell of weak productivity and investment and governments too focused on handing out consumer checks, he said.
The Covid burst of spending and a lack of restraint since has lifted interest costs to 11% of government revenue, weakening its ability to respond to economic bumps, he said. Canadians are also heavily indebted by a long housing boom while companies spend less than 70 cents on equipment per worker compared with U.S. competitors, which has seen a costly losses in the American market to Mexico and China. Even the recent CAD decline to the weakest since 2003 is seen as no tonic for these issues.
MONETARY POLICY
Monetary policy will also be held back even if a trade war pushes Canada into a recession because of the risk of a loosening grip on inflation pushed up by tariffs, Asselin said.
The Bank of Canada cut rates for a sixth time last week to 3%, coming close to the midpoint of its estimated neutral range of 2.25% to 3.25%. Economists see scope for a just few more quarter point cuts in the next few months unless the economy nosedives. (See: MNI INTERVIEW: BOC To Cut Faster And Deeper In Trade War)
“We can’t really hope that they will be able to help us much, to be honest, and I’m kind of worried about that if that happens,” Asselin said. “That they will stay put is more likely in my view, try to decide what the neutral rate is and stay there, as opposed to a drastic move in one way or the other.”